Are you planning to do an off-plan condo purchase in Thailand? Condominium Purchase in Thailand is allowed for foreigners, but, when it goes off-plan, there are various risks associated with the same. Before going into deep analysis, let us first know what is an off-plan condominium?
What is Off-Plan Condominium/Property?
A Condominium that has not yet had a structure built is an off-plan property. Pre-constructions are typically advertised as developments to real estate developers and early adopters in order for the buyer to obtain more advantageous financing terms from their lenders.
Off-plan condominiums are generally purchased by property investors or speculators with the goal of achieving significant capital gains. Developers who sell off-plan property frequently offer financial incentives or discounts to early adopters, which may account for this financial return. In addition, in a rising market with a development cycle of 12–24 months, there may be a potential for capital growth.
The following are the most typical issues foreigners face when purchasing an off-plan condo apartment in Thailand:
- Developer goes bankrupt or runs out of money (often due to poor sales),
- Inferior product is provided, and
- The project takes significantly longer to complete and finish than expected.
Buyers can deposits all payments under the sale and purchase agreement directly into the developer’s bank account during construction. However, it should not be into a third-party escrow account, in Thailand’s off-the-plan property developments. The buyer can pay directly to the developer’s bank account rather than an escrow account. Additionally, money held in the account of a financial institution in Thailand that accepts and disburses funds in accordance with an escrow agreement, pose significant risks and disadvantages to the buyer.
Off-Plan Condo Purchase in Thailand and Escrow
Payment terms and risks when buying pre-construction
In the case of the sale of an existing condo, a buyer can pay the purchase price using a cashier’s check at the land office after the transfer of ownership. The seller may want a small payment from the buyer at the time of signing the condo sale and purchase agreement. In the case of an off-the-plan condominium in Thailand, the buyer frequently pays a significant portion of the purchase price to the developer prior to the transfer of title and completion of the unit, or even before work begins. In off-plan condo complexes, the normal payment schedule is as follows:
- If applicable, a reservation agreement with a charge of 100,000 baht (approx 3300 USD).
- On the completion date of the condominium sale and purchase agreement, a deposit of 10 to 20% of the entire condominium price is mandatory.
- Monthly installments during the condominium’s construction, with final payment due upon completion and transfer of ownership.
Who receives the purchase price installments?
Buyers can do frequent transfers of funds directly into the developer’s bank account during the construction of the condominium. This method is more preferred than a third-party escrow account that protects the buyers’ payments.
Developers in Thailand rarely offer escrow since they rely on regular payments to keep their projects afloat. They do not issue escrow agreements to consumers under the 2008 Escrow Act or the New 2008 Condominium Act. Indeed, escrow agreements are unusual in Thailand. Therefore, property developers are free to demand deposits and installment payments from customers. Additionally, they can do so without providing any safety or guarantee for these payments. However, they do provide contractual obligations under the sale and purchase contract. Obviously, this entails some risk on the part of the buyer.
There can be a dispute for which the buyer may not make the final payment. The various reason behind the disputes can be like –
The quality of the condominium was substandard or does not meet the criteria as per the developer’s initial commitment.
In such cases, the developer will mark the buyer as a defaulter. Henceforth the developer will forfeit all the payments made by this buyer and can sell the condo to someone else. This will not be possible if the payment is in escrow.
Payments to an escrow account are made to a third-party escrow licensed financial institution/bank (not a law firm). Such institutions will retain the funds until they meet the sale and purchase agreement’s terms. Escrow services provide greater security for consumers, however, they are not widely in use in Thailand.
How to judge Property Developers to make Payments?
In Thailand, paying a big amount to the developer before the completion and delivery of the project is not advisable. There are SET-listed property developers with considerable share capital or a local limited liability business. In this case, the issue will be different. You can pay them the demanded amount with proper receipt and documentation of the same. A local developer operating a property development through an under-capitalized LLC faces clear dangers.
To accept payments, the developer has to obtain the foreign exchange documentation for foreign condominium ownership registration (FET form).
The most common problems
In the current market, particularly pricey tourist condos are difficult to sell. The following are the most common issues that customers face:
- The developer falls bankrupt, leaving the project unfinished.
- The condominium turns out to be a leasehold property.
- The construction is of poor quality.
- Delay in completion.
- On a variety of terms, there is a general default.
Another most noteworthy common trouble is difficulty in finding a trustworthy and reliable property lawyer. As a foreigner, it is not possible to know all about the local norms and real estate regulations. The intervention of Local Lawyers or Law agencies is mandatory in the process of Off-plan Condo Purchase in Thailand. Book a free round of consultation with us or email us at [email protected] for further information.
